Lord Chancellor Ken Clarke said yesterday that Europe's banking system was in a mess, with no one knowing exactly what is going to happen in Europe, especially at the moment with everyone urging the Eurozone leaders to put proper contingency plans together to protect their economies from the possibility of Greece dropping out.
German and French leaders met this week to put together a revised plan for the Euro, while Greece lurched towards a possible exit and Spain's budget deficit widened, with European Union leaders preparing for a summit meeting in Brussels on 23rd June.
The Euro has lost 3.5% against the US Dollar this month with almost 4 trillion wiped and there are concerns over Greece’s situation and what is truly going to happen with Spanish yields closing last week at 6.27%.
This week President Barack Obama is meeting with Angela Merkel and EU leaders in Holland to focus on a renewed focus on growth (currently with no potential solution for Greece). Leaders should not rule out measures such as state borrowing from the European Central Bank.
The G8 came together over the weekend and said that they will do what is necessary to keep Greece in the Euro. This as you know though is not a solution and has provided temporary confidence to the market.
The real test will be what Government comes into power in Greece – we believe the anti-austerity Government is likely to assume power... then the ball will be back with the rest of Europe to decide if they want to bend over and let Greece get away with not introducing the level of cuts that is required to receive a bailout.
Regardless, it should be a bit of a turnaround and there will be risk appetite till then. We have already seen the Euro gain ground both against the US Dollar and UK Pound.
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